“Everything indicates that, when the surveys began to be released with the level of support for the PIT-CNT plebisciteand economists and politicians began to warn about the matter, some funds made the decision to exit bonds in pesos (mainly 2031, which is the most liquid). The estimate we have is that they sold for an approximate figure equivalent to US$ 700 million,” he added.
Economists and investors asked why there was no movement in the country risk. “The bond in pesos – which has a coupon of 8.25% – is the highest degree of exposure to Uruguay. Just as placing it constitutes the greatest ‘success’ in terms of debt management, to the extent that it is the highest degree of sovereignty (own currency, not indexed), the holder is exposed to the currency risk (devaluation) and the country risk itself (default). Therefore, it is not surprising that the ‘noise’ that the plebiscite is generating is expressed in sales of these bonds. In addition, it must be taken into account that international funds (the most active in the market) mostly have bonds in pesos, as well as sovereign bonds in dollars (lower risk); the AFAPon the other hand, have mostly UI bonuses, which is reasonable considering their role in the social security system”he added.
One of the clients wanted more details. “How is the operation? What role did the AFAP have?” he asked, somewhat anxiously. “When the funds sell – among Uruguayan bondholders there are BlackRock, Pimco, Templetonetc.- they charge in dollars. The buyers were mainly the AFAP, which – therefore – had to go out and buy dollars to complete the purchase, which drove up the price,” responded another of the executives. “What if the AFAP had not bought?” asked the client, insistently. There was a brief silence… “Let’s see… -the first expert began to respond- the AFAP also did their business: notice that they started buying with the bonus paying 9.4% cash and ended up at 10.2%… maybe to say that they bought cheap, is that understood?”, he argued.
“Yes, it is understood…. and it is understood that the role of the AFAP in these situations is key. “No?” said one of the economists, who was listening attentively. “It is a paradox, because the plebiscite, if approved, eliminates the AFAP…. But they are the ones who are acting to moderate the impact of sales,” he reflected. The rest exchanged glances.
“And how does this continue?” asked the other economist, while pouring himself a second coffee. The investment executive smiled and replied: “That’s what I wanted to ask you…”. Everyone smiled, but the serious tone of the dialogue was quickly recomposed. “The dollar has now remained quieter… everything indicates that the sales were punctual, although voluminous. Surely the funds are now attentive to the expectation of the result itself on October 27,” the economist risked. “Unless something unforeseen happens before… The polls do not define a clear panorama, but in general they show a drop in support for the plebiscite,” he concluded.
Another attendee added: “They tell me that there is a fund that is especially active in buying back securities, acting in reversal of the selling trend; is based on the fact that it will not be approved and that – with the drop in the rate in USA– the titles of Latin America (including Uruguay) have become attractive again,” he concluded.
Global tax
At the barbecue of his house in a private neighborhood in Cannellonian important businessman was sharing a dinner with friends, when one of them brought the topic up on the table. “Does anyone know anything about this global tax? I listened to Orsi talk about the topic…” Another of them, an accountant and advisor to important companies, some in the forestry sector, advanced a response. “Look, in a way it’s quite simple: the OECD is promoting large companies – with turnover of 800 million euros or more – to pay a global tax on all their businesses of at least 15%. Originally the objective was to combat the so-called ‘paper’ companies, that is, those that have no substance, but are established in low-tax countries and concentrate the largest possible part of the parent company’s income there; In short, it is a form of evasion that now developed countries aim to eliminate, do you understand?”
“I think so,” answered the first. And how can it impact Uruguay?” The other put aside the snack that was circulating among the diners and prepared his response. “The issue is that Uruguay has investment promotion regimes that exempt rent; one of the best known and most robust are the free zonesbut there is also the investment law and others. With the OECD initiative, global companies – even if they are located here and have income tax exemption – have to pay at least 15% for that income generated here; and in principle they will do so in the countries where they have their headquarters.”
“And why don’t they pay here?” his friend asked again, insistently. “Well, there’s the point: as it comes, the benefits of our investment regimes for those large companies stop making much sense, because they have to pay income tax anyway. For this reason, now it is proposed to generate some mechanism, some stimulus, so that they pay here; because to pay, they will have to pay the same.” His friend asked again. “And how much money are we talking about?” “Ah… but you’re asking questions today, huh?” they laughed. “I really don’t know,” replied the other. “I do know,” said another member of the group with a poker face, a man of politics and with access to the financial environment. “I know what they estimate in the government and in the FA,” he added boastfully. “Opa! You’re all skinny, hold out your fork a little and tell us!” another of the diners claimed, laughing.
“I am told on good authority that Oddonefuture Minister of Economy if the FA wins, estimates that Uruguay could raise an additional 700 to 800 million dollars if a regime to collect the tax were finalized; in it National Party, Labat He is more cautious and talks about about 500 million dollars. In general, the government has been cautious on this issue, because the global application is still not clear, and we have to see who wins in USA to see if the main power joins in or not… The FA was quick to put the issue on the program and Orsi mentioned it publicly; I think that there the opposition won the initiative from the government. In the MEF they have been working on the issue, but with little public exposure,” he said. “And they tell me something else: recently a manager from one of the main global banks was here, with responsibilities in the Scandinavian countries, the origin of the main forestry companies here; and the key issue was this,” he added with a tone of telling the story.
The rest listened attentively, while a 2018 harvest tannat circulated. “It is a delicate matter, there are already companies that are considering reducing their operations in Uruguay. But the majority, both industrial and services, are studying how to work with the government to generate a stimulus mechanism that makes it easier (makes it convenient) to pay taxes here; they tell me about the pulp companiesIT companies like Globantand others. But it is not a technically simple matter: the OECD is going to look closely at how Uruguay proceeds. There are some businessmen concerned because, in a certain way, it is an impact on the sovereignty of the country,” he concluded with a tone of having won the competition for information by a landslide. “Tremendous skinny, how do you have so much information?” they asked him. “And well, I confess that this is not the only barbecue I frequent,” he responded and burst out laughing.
Source: Ambito
I am Pierce Boyd, a driven and ambitious professional working in the news industry. I have been writing for 24 Hours Worlds for over five years, specializing in sports section coverage. During my tenure at the publication, I have built an impressive portfolio of articles that has earned me a reputation as an experienced journalist and content creator.
